How much,in rental losses,can an individual earning a salary of $125,000 per year offset against salary if he or she owns at least 10% of a rental activity and actively participates in the rental activity?

Question

Quizplus · Accepted Answer

If an individual actively participates in a rental activity in which they own at least 10%, they may be able to deduct up to $25,000 in rental losses against their salary income. However, the amount they can deduct is phased out for higher income levels.

In this case, the individual earns a salary of $125,000 per year, which means they are subject to the phase-out rule. The deduction is reduced by 50 cents for every dollar of adjusted gross income (AGI) over $100,000, until it reaches zero at an AGI of $150,000.

The individual's AGI is $125,000, which is $25,000 above the $100,000 threshold. Therefore, the deduction is reduced by $12,500 (50% of $25,000). As a result, the individual can offset up to $12,500 in rental losses against their salary income.

Therefore, option C) $12,500 is the correct answer.

How Much,in Rental Losses,can an Individual Earning a Salary of $125,000